Embattled Life Partners sued by shareholders

Claim life settlement provider harmed investors by using flawed actuarial statistics
JAN 27, 2011
Life Partners Holdings Inc. is the subject of two lawsuits filed this week by angry shareholders, who claim that news of the life settlement provider's brush with regulators dented the firm's share price. Shareholder Selma Stone filed suit yesterday against Life Partners Holdings Inc., its chief executive, Brian D. Pardo; and general counsel, R. Scott Peden, in U.S. District Court for the Western District of Texas. That lawsuit follows on the heels of a similar complaint filed Wednesday in the same district court by Life Partners shareholder Gerald A. Taylor. The plaintiffs in both cases are seeking class-action status. Both suits allege fraud on the part of life settlements provider Life Partners, pointing to a string of stories from The Wall Street Journal that called into question the validity of the company's life expectancy estimates. The Journal also reported on Jan. 20 that the firm was under investigation by the Securities and Exchange Commission, which Life Partners later confirmed. The suits claim that Life Partners not only relied on life expectancy projections that were much too short, but that the underestimation allowed the company to charge investors larger fees when brokering life settlements. Generally, life insurance policies on those with short life expectancies sell on the secondary market at a premium because the policies are expected to pay out to the investor sooner. Since Life Partners' revenues had benefited from the use of these alleged business practices, the firm's financial statements were false and misleading, the suits allege. The plaintiffs claim that Life Partners' share price was artificially inflated, and thus shareholders suffered when the value of the company's stock plummeted. On Jan. 20, the day that the firm confirmed it was under investigation by the SEC, Life Partners' share price dropped by more than 17%, closing at $12.46. “The price of Life Partners' securities significantly declined when misrepresentations made to the market and the information alleged herein to have been concealed for the market were revealed, causing investors losses,” Mr. Taylor claimed in his suit. Ms. Stone and Mr. Taylor are suing for damages, plus interest and coverage of their legal fees. Calls to Life Partners Holdings and its attorney, Ida Draim, were not immediately returned.

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